Network Equity

Our portfolio company LaRuche is leading an effort in France to allow platforms to share the equity in their businesses to the broader network of participants on their platform. As more and more businesses leverage the power of networks to create economic value, there is a question of whether the network participants should share in the value they help create.

Reddit has expressed a desire to share equity in Reddit with its community and went as far to announce that intention when it raised capital in the fall of 2014. The last I heard, Reddit had put those plans on hold in anticipation of more regulatory clarity around this issue.

Regulatory clarity is what is lacking, both in the US and in other countries, and France is no exception. Marc-David Choukroun, co-founder and CEO of LaRuche, wrote a tribune in Les Echos, the leading financial newspaper in France, explaining his views on the issue. I’ve pasted a translation of it here:

Long seen as the future, the sharing economy is now accused of being responsible for all society’s ills. In response, some experts on the new economy have suggested that platforms should be transformed into cooperatives. But is that really such a good idea?

By Marc-David Choukroun, CEO of The Food Assembly (La Ruche qui dit Oui !).

Not so long ago, the sharing economy was seen pretty much universally as a sort of magic bullet for the social and environmental crises of our times. Then, all of a sudden, the tone changed. The new economy was blamed for a whole swathe of ills, including widespread job insecurity, excessive commercialisation, and generalized fraud. The spectre of “Uberisation” is hanging over the world. The problem is that, while attempting to apply this concept to just about anything, we foolishly let the debate become polarised between the partisans of California-style capitalism and the white knights of the common good.

In the midst of this great wave of criticism, which has often been justified but sometimes excessive, the following idea is increasingly being put forward: that online platforms should be transformed into cooperatives. Give or take a few details, is the sharing economy not a form of unconscious mutualism? Indeed, leading specialists in the new economy met recently at a conference entitled “Platform Cooperativism” in New York to debate this question.

There are upsides to the idea: after all, the concern of fair sharing of value between users, freelancers and platforms themselves is a fully legitimate one. But I am rather afraid that this idea may be a bit more difficult to put in place than it seems. As things stand, the structure of a cooperative involves a lot of complications that make it ill-adapted to digital companies.

In 2011, I co-founded a collaborative platform called “La Ruche qui dit Oui !” (“The Food Assembly” in English). At the time, the concept of the “sharing economy” hadn’t yet emerged. And to be quite honest, we didn’t care much about labels. We knew that if we were to have any chance of taking the slightest bit of ground from the giants of food distribution, we could not afford to remain just one more “local food” initiative. And if, as we say in start-up jargon, we were to “scale up”, then the form of a commercial enterprise was a must.

Is there a legal structure that is perfectly suited to this sort of hybrid entity, somewhere in between a conventional business and a network? We very seriously considered the cooperative option a year ago. The conclusion was clear: as things stand, the idea doesn’t really stand up. The form of a cooperative involves a certain number of requirements that are complicated, and above all incompatible with managing an innovative start-up. Firstly, their governance is arduous and complex, while agility is needed. And secondly, the diversity of statuses and motivations in our network – some are guided by a spirit of activism, while others are simply seeking some extra income – is one of the strengths of our model. Another major difficulty is that the shares in cooperatives are fixed at their nominal value of issue, which is just inconceivable for a growing start-up(*).  

It is also difficult for cooperatives to raise funds, as the complexity of their structure tends to deter investors, yet the costs of developing and maintaining a platform are far from negligible: the largest collaborative platforms employ hundreds of developers. It is therefore best to avoid economic purism and one-size-fits-all solutions.

That does not mean that the issue of sharing value fairly should not be raised – far from it. It is evident that the success of a collaborative model relies largely on the commitment of the members of its community of contributors. It would be fair to be able to involve this new type of entrepreneurs in the company’s capital. In an economy that involves more and more freelancers, this is even a key issue.

Yet instruments to reward them already exist and simply need to be adapted, such as stock warrants for business creators (bons de souscription de parts de créateur d’entreprise, BSPCE) in France. These are stock options that can be awarded free of charge to the employees of a company. To strengthen our ties with the freelancers in our network, this instrument could simply be expanded beyond employees alone – for a new sharing of risk, a new sharing of value is needed. A cooperative system compatible with the digital economy still needs to be built, so let us start by laying the first foundations.

Marc-David Choukroun is a co-founder and the CEO of The Food Assembly (La Ruche qui dit Oui !).

(*) On this specific point, it is important to note that a number of exceptions are possible, complicating matters further still.

Like many political debates, there are many views on this issue. The purists would like to see cooperativism strengthened and applied to these platforms. Others want to regulate these platforms to protect the workers/freelancers in a union style model. But the middle ground, which seems more sensible to me, is to allow platforms an easy and elegant way to share their equity with network participants so that the broader ecosystem can share in the value these platforms are creating.

I hope the French government sees the wisdom of this approach. It would be great if governments around the world, including, of course, the US government, would evolve the legal and taxation frameworks around the sharing of equity so that network platforms can choose to share the value creation with their broader ecosystem.


Comments (Archived):

  1. andyswan

    Watching @Jack hand shares of $TWTR to @nero would be the best thing ever.

  2. JLM

    .It is difficult to see this debate as either political or regulatory. There is a longstanding and well used framework for such sentiments — the use of a “mutual” ownership arrangement.It has been used for years in the banking (primarily savings & loans) and insurance industries. For years. Well known. Well used.USAA insurance in San Antonio, with whom I am going on my 5th decade of business, is a well known mutual which is owned by its members. You buy an insurance product and you are an owner. Simple as that.You get an annual dividend.You also get another dividend when you are a certain age and based on your longevity with the company. It is a damn good arrangement and USAA’s already pencil sharp prices are quite good as a result of these things.It makes good into great and great into spectacular. Of course, the joint is run by a bunch of generals and officers, so what did you expect?You pay your premiums and at the end of the year, you get a dividend. It goes into a Subscriber Savings Account and you can withdraw it when you leave the association. Cash.I have a fair amount of $$$ in mine.By way of regulatory thinking — these funds are considered “paid in capital” and therefore count as the regulatory capital required to be an insurer, bank, brokerage, and all the other stuff that USAA is.REI, the outdoor equipment/clothing company takes a similar approach as a cooperative. Another fully grown up legal approach.This is a perfect example of the current generation thinking they have to invent either sex or business. They’ve already been invented. Just improve them.OK, for the new folk, “Your generation didn’t invent sex or business.” Sorry.JLMwww.themusingsofthebigredca…

    1. Yinka!

      Interesting. What is the rationale behind paying dividends based on age and longevity with company vs just based on who has stock or not? Shouldn’t every owner receive them when available?

      1. JLM

        .I cannot answer though I could speculate. I just don’t know but I like them as they amount to about 20% of my premiums.JLMwww.themusingsofthebigredca…

      2. LE

        What is the rationale behind paying dividends based on age and longevity with companyIt’s extremely rational and aspirational exactly. (Not sure of the correct MBA way to say this of course). By telling someone they are getting more the longer they have been with the business “you are a loyal customer of ours” it makes it less likely for that group of people to jump to another company. A way to tie them in. They have a vested psychological interest in being consistent and not leaving what they have “earned”. [1] It’s a first class manipulation. Loyalty pricing (by way of dividends). But better than changing the pricing works way way better. Seems fairer. Less legal issues to work around.Look how special JLM thinks he is. He not only likes the 20% that he gets but he feels he has earned that 20% and is entitled to it and I would guess likes the fact that he gets that and someone who has only been with them 2 years is paying more so he can get it. (Because that is what is happening, right? That is where the $$ are coming from.). I know that I would.[1] This is almost similar to karma points in a way. Wouldn’t you say that someone with more karma points has more of a reason to continue to pile up karma points? That is obviously what happens in communities. Basic human nature.

        1. Yinka!

          I get the loyalty incentive. I initially was mostly surprised that new owners would accept receiving zero dividends in their first years. But I just realized I misread that detail; a re-read showed that the longevity one was an additional dividend, so newbies weren’t completely left out of the profit-sharing.

          1. LE

            Yep “the tease” is really important. Kind of like when someone plays slots they get some winnings to keep them in the game. Similar principle of manipulation and reward. Same reason when I tease the kitten with a toy I make sure he gets the toy a percentage of the time.

    2. Salt Shaker

      Curious what kind of returns are generated vs. say the S&P, Russell, etc.? More like fixed income securities than mutual funds?

      1. JLM

        .I don’t think you can really look at it like a public security. You pay in premiums and then you get back an annual dividend (it’s called a ‘dividend’ and perhaps the nomenclature is the problem as it is a fixed percentage of your premiums).Seems like it’s 15-20% of premiums. Obviously the more you pay in premiums, the bigger your dividend.I have used them for property, casualty, liability, auto, watercraft, stupid insurance.I have had a few claims and their claims admin is incredible. The only argument I have ever had with them is when they paid me much more than I thought I was owed.JLMwww.themusingsofthebigredca…

        1. Salt Shaker

          I’m an REI member. Fab operation, btw! (Their flagship store in Seattle is the bomb.) REI doesn’t include sale or promo items in their dividend calculation, yet promos are a huge part of their marketing strat. I understand the logic and the reduced margins makes it unaffordable, but it did feel a little like bait and switch. Of course, I didn’t read the fine print 🙂

          1. JLM

            .Haha, write to them. You own the joint, figuratively. I love REI and they send me a check with no prodding. I elect the discount and they apply it automatically at the cash register.Old wine, old bottles.JLMwww.themusingsofthebigredca…

          2. LE

            Not a big REI customer (was in one last weekend though) but I am always amazed at the corn fed people that work for places like that.but it did feel a little like bait and switchIf you wrap regular business practices in a little bit of “we care about our customers and employees” it’s amazing what traditional business practices you can also get away with. Not saying this doesn’t happen genuinely on a small scale (Lancaster Bread Co) just hard to believe at a large scale you can hire enough body snatchings to pull it off. This works on a small scale because companies can take the cream of the crop of employees unfortunately not enough of these bodies to go around and also unfortunately competitors would make it hard for you to continue to operate this way with practices that they have to do to keep in the game.

          3. Salt Shaker

            “Corn fed people”It’s interesting how employees at companies like REI help to create and define the culture and brand image. They’re clones cut from the same cloth. They possess a passion for the brand and its product that seems quite genuine and sincere. Trader Joe’s has a similar dynamic w/ its employees.

          4. LE

            Whole Foods, Starbucks similar. [1]You know if you try to start a clone of those companies (on a small scale) you will have a hard time competing for those corn fed employees. Why? Because the larger companies appear to present more opportunity for advancement and have a strong brand name you can impress your aunt and friends with. Better to be a fish monger at Whole Foods they think rather than the local Shop Rite.This is why the local really nice (and operated by a decent sized food company) whole foods clone in my community isn’t working. They are just lipstick on a pig. They have “supermarket grade” employees working for them. It’s obvious these people are not the same as those who would work for a whole foods. And I am not sure there is much that can be done to change that actually. If you were going to work a low paid essentially supermarket job (or a coffee shop job) then the well known places are the place to be. The “nice place to work” not only is the physical space and the pay and the benefits but also the cohort of workers. Really similar in a way to how it’s hard for a college that is not top notch to duplicate a top notch college environment. It’s chicken and egg and develops over time organically. You can’t just build buildings and hire profs and viola the student body is also cool as well.[1] But of course there are examples on a smaller scale. Typically bike shops, music shops, ski shops (I would think) get a particular grade of people that is not “best buy” grade but those who love what they do and take low pay to do it. But in the end it’s still a shit low paid retail job but they can kid themselves into thinking it’s something better than that (pay wise at least).

          5. PhilipSugar

            We do a lot of work like this. Your perspective is not unique. Many people say why do you punish me for buying what you are promoting? This is the intersection of finance and marketing, which is always a struggle.

          6. LE

            Since you work in this area let me ask you a question. Why does it appear that businesses have not figured out a way to identify and reward “connectors” (see Gladwell)? I can think of some negatives (if you reward someone for something they do with no reward it might have a negative impact). But also many positives. The people who should have the most reward should be those that naturally are the ones to talk about the company and evangelize it to their friends and even strangers. (Look at JLM and USAA or the food places he visits as only one example. I am like this as well with things (but not on this blog). Not talking about affiliate programs etc.Separately I have noticed that many NYers that I deal with are connectors in a big way. It’s almost as if they thrive on making connections. And it’s something that they actually do and appear to enjoy, not something they tell you about is what I have found. As in trading “here is the place you want to go to they have the best X”.

          7. PhilipSugar

            You certainly can reward for referrals by either giving the referrer a code to give out or by having the referree reference the referrers email or number. The challenge is that it requires an extra step and now you are rewarding an extra amount.You can also reward for social actions. The challenge here is that people will game the system and sometimes people will feel like you are forcing them to pimp out their social media. I.e. Coke had some pushback. You could only get certain rewards if you liked them/promoted them/tweeted them

          8. LE

            No I am talking about some way of proactively identifying people as connectors and then simply trying to engage them as customers perhaps without even letting them know the reason (and actually I think that is important). For example my guess is that people who write positive reviews on, say, tripadvisor, yelp and similar but have a low ratio of negative comments are good people to have for any business (not just travel and food). Hard to believe that someone can’t figure out a way to mine this in some way since it’s after the fact and if done correctly would be quite difficult to scale. Of course it would involve manual turk like labor so not really the forte of the startups.

    3. LE

      Ditto for Liberty Mutual a company that I have different insurance products with:…In the United States, Liberty Mutual remains a mutual company where policyholders holding contracts for insurance are considered shareholders in the company. However, Liberty Mutual Group’s brand usually operates as a separate entity outside the United States. In other countries, subsidiaries are often created in countries where legally recognized mutual company benefits cannot be enjoyed.That of course doesn’t prevent them from jacking up rates consistently every year. In terms of dealing with them they operate just like any other insurance business I have ever dealt with. In fact they even magically lowered (by 1/2, that’s right 1/2) my auto insurance rates just because I called them and said I was switching to another company. They said they had some “new program” for people like me that “just came out”. So they didn’t proactively contact me they waited (as a traditional business would) until I said I was leaving. [1][1] Which is actually not trivial when you have different insurance products with the same company.

      1. JLM

        .I have never seen USAA beaten on rates on anything.They also have a buying service whereat you can get nice discounts, $500-1,000, on new cars and Mikimoto pearls (the Japs should give us discounts at USAA cause of WWII, no?).USAA (United Services Automobile Ass’n) got started because Army officers couldn’t auto insurance in Germany after the war. Back in the day, if you were in Germany with the frauleins the ONLY insurance you could get was USAA.JLMwww.themusingsofthebigredca…

        1. LE

          I don’t need no stinking car discount negotiated for me!!! That would be like someone else allowing a third party to play the poker game for them. What fun would that be?Anyway after your last “advertisement” for USAA (last week) I actually did visit the web page to see how I could game my way into USAA so I could compare rates and get some of the goodies that you mentioned. You need a military ID number. If I have time I might see if I can get one of those (maybe my Uncle has one he served in WW2). Would be interesting to see how much actual checking [1] they do after the info is presented.[1] If it’s anything like Apple and the education discount (5% roughly) ….

          1. JLM

            .It is a coupon that you whip out when you have concluded YOUR negotiations. It is cash.JLMwww.themusingsofthebigredca…

    4. LE

      You also get another dividend when you are a certain age and based on your longevity with the company. It is a damn good arrangementOk put ass on table then. How much money are we actually talking about here? How much of a check do they send you? I’ve had similar things in the past and the check is really quite trivial and meaningless.

      1. JLM

        .About 15-20% of premium annually. More premium, more basic dividend. This goes into your SSA (Subscriber Savings Account).Then you also get the longevity/age dividend which is about half that number. It is cash right to you.JLMwww.themusingsoftthebigredc…

        1. LE

          It’s unclear to me how they could be doing all of the following:1) Charge competitive rates2) Pay claims3) Have enough money to invest and maintain company4) Pay competitive salaries to employees5) Pay back 15 to 20% of the premium.Doesn’t seem like margins and basic competitive pressures would allow that. I can see how they could pay something back but the amounts you are offering (which are quite generous) seem hard to believe. [1][1] Not that I am doubting you with the 20% just questioning the economic model that allows them to also charge a rate as low as another company is doing. An example is Liberty and how they pay claims. They are good with that let’s stipulate “no depreciation on new car that is totaled”. But that is baked into the rate that you pay as I found out.

          1. JLM

            .Their premium collection percentage is 99.9999% because former Army officers pay their bills.Their clientele is quite safe because former Army officers are careful.It has to do with their actual claims experience and nothing more.Plus, they have a fabulous horizontal cross selling sell up. Insurance (all kinds), banking, brokerage, buying service, etc.They also have a great investment operation and were some of the first to invest in real estate and venture capital.They are also extremely well run.They are the Special Forces, the Blue Angels of the insurance racket.JLMwww.themusingsofthebigredca…

          2. LE

            Hah hah sounds very Trumpian!Of the above that you have presented, the things that you are surely joking about (99.9999% or “are more careful”) are what could matter. [1] But unfortunately as you know there are former military people that have more problems than the rest of society, right? Or are you serious and do you really think there is that great of a statistical difference in their pool of customers vs. brand X? Not saying there isn’t a difference but nowhere near enough to matter as much as it does. Statistically.They also have a great investment operation and were some of the first to invest in real estate and venture capital.Once again hard to believe this matters as much as you present. That is what insurance companies do they invest premiums. Not saying this couldn’t be correct and sure BMW makes a better car than GM a they are both large auto companies but with this type of thing the differential appears quite large. Not like comparing Warren to some regular investor (yes he can do deals that others can’t because he is Warren).[1] Why then do vets often (as presented in the media anyway) have hard times getting jobs? I have actually always wondered about this because it seems they would make the perfect corporate clones actually and be able to follow corporate marching orders.

          3. JLM

            .You have to make the distinction that USAA was originally only officers so the experience of other enlisted veterans was not baked into this cake.As to premiums, gen’l insurance average premium collection is down in the low 90% range. Of course, anybody who has a claim immediately pays their premiums.Former Army officers are a very distinct breed of cat. Their behavior is dictated by their unique characteristics. This is the most fundamental filter risk one could find. They have a good pool.They also tend to be financially conservative and insurance buyers with a higher than average life expectancy. They pay premiums for a longer time because of this.No different than if everyone in a health care pool was spayed and 30 years old. Much less riskier group and not likely to have expensive babies, no?You are missing the obvious.They are all former generals and their investments are conservative. This is true.JLMwww.themusingsofthebigredca…

          4. LE

            Former Army officers are a very distinct breed of cat. Their behavior isdictated by their unique characteristics. This is the most fundamental filter on risk one could find. They have a good pool.However USAA allows members to pass along memberships to family members who are not members of the military and that would seem to change the pool.Also not everyone who is a member of USAA is “an officer” at least according to this definition:An officer is a member of an armed force or uniformed service who holds a position of authority. Used without further detail, the term “officer” almost always refers to commissioned officers, the most senior portion of a force who derive authority from a commission from a state.Anyway you say:They are all former generals and their investments are conservative. Point taken but that seems fairly easy to duplicate ie “conservative investments” and what special skill does a former general have in identifying or greenlighting investments.

          5. JLM

            .The change to allowing relatives initially and then enlisted ranks is a recent change. One has to focus on the notion that since the advent of the all volunteer Army, the quality of the average trooper is dramatically higher — no draft.An NCO is a senior sergeant and likely a better risk than a bunch of green lieutenants. The lieutenant has been in this man’s Army for 0-3 years. A senior NCO has been in for 4-40 years. No real dilution of the gene pool there.I frankly question the wisdom of broadening the gene pool but results have been as good or better than the original pool.A general officer is in the top 0.01% of his year group. That is a very rarified bit of real estate. USAA hires and retains great investment pros and pays them Wall Street wages in Old San Antone. A bit of all right.Just like UTIMCO — University of Texas Investment Management Company.Stop sharpshooting me. You are engaging in a micro-aggression. But, then, how are you going to learn, no?JLMwww.themusingsofthebigredca…

          6. LE

            Stop sharpshooting me. You are engaging in a micro-aggression. But, then, how are you going to learn, no?Good thing we are just commenting I agree that I am pretty good at wearing people down in the way that you just seemed to indicate. Wasn’t my intention here I have nothing to gain nobody is even reading this late in the day!

          7. JLM

            .No sweat. I have way more ass than you have teeth. Bite away.JLMwww.themusingsofthebigredca…

          8. Lawrence Brass

            Eat his ice cream and he will stop, it is right side up in the freezer. 😉

    5. LaVonne Reimer

      Everything old is new again. I was in Portland, OR last fall, hitching a ride to the airport. Ended up defaulting to a cab company in lieu of Uber. I picked one that claimed to be member owned. Yeah, I’m one of those passengers who grills the driver. What’s it like working for Uber or Radio Cab? How does the model work? Etc. Radio Cab has been around, like, forever and the driver was a retired CPA who has been around the block a few times. That spirit of ownership and pride was clear. No app pinging me for a rating at the end of the ride but I’d rate the experience I had with this driver well beyond anything I’ve experienced with Uber. Everything old can be improved upon as you say and we (now speaking from my former days as a lawyer) have the tools to make well-established business models work for new opportunities. I will not speak to the invention or re-invention of sex!

    6. William Mougayar

      Yes and No…on the re-invention thing. Here’s the nuance:When you are created from Day 1 as a mutual co-operative, that case is clear, and no re-invention is required.But when you are not created that way, and you’re trying to be partially about that, that’s where it gets tricky, and where re-invention and innovation are required, because you want to be partially participative, but not entirely. That’s where these new hybrid models can become reality. (and see my long comment adding to this)

      1. JLM

        .Fair play to you. It is more difficult to remodel a house than to build a new one, sometimes.All the easy deals got done in the 1960s.JLMwww.themusingsofthebigredca…

        1. William Mougayar

          Good analogy. Another close one might be to turn 1 of your bedrooms into an Airbnb, and turn you into a host. That’s easier than re-modelling the whole house as a B&B (which you don’t want, because you still want to live in it, the way you want).So what we are talking about here is a minor re-modelling effort, but not a structural one.

    7. Vasudev Ram

      Ha ha, vintage Jeff. Salut! (*)(*) Get the wordplay?I said roughly the same thing about tech in this recent HN thread about IBM adopting Google’s hot Go language:IBM ported Go to s390x mainframes:…My comment:

      1. JLM

        .Good one. Hand salute to you, my friend.JLMwww.themusingsofthebigredca…

    8. Lawrence Brass

      How does title III of JOBS Act, Equity Crowdfunding with Non-Accrediteds relates with this topic? Does it provide a legal and regulatory framework that could be used for sharing equity with network participants? Or is it too complicated for the purpose?

    9. Mark Essel

      <3 USAA, got in due to my pop’s Airforce service and have never looked back.

    10. JamesHRH

      Also known as a Coop, REI’s Canadian cousin is named Mountain Equipment Coop ( MEC ).Coops – like all organizations – are only as good as management it seems.Western Canadian grain farmers basically dissolved the legally mandated sales organization that marketed their products ( the CDN Wheat Board ). It seems that Coops work best when they pool buying power as opposed to sharing the marketing of production, which describes USAa.

    11. fredwilson

      yeah, but that model won’t work for startups unfortunately. that was the point of my post and Marc-David’s “tribune”

      1. JLM

        .You would know better than I and I defer to your judgement.But it is not the “model” that is often the element of transference between the old and the new, it is the underlying principle, the intelligence, the approach that is woven into the DNA of the new model thereby taking the best of an old idea and melding it with a new idea.The marketplace and wrestling match of ideas.I wonder if any startup is able to really confront its own future until it is able to exit the cradle and walk upright. So, when you say a “startup” cannot do this, the answer may simply be to let the startup get its legs under it and then make the necessary changes.This is, in fact, what is happening. These changes are being made by companies that were startups, have survived the birth canal, and now are children or adolescents, at best.JLMwww.themusingsofthebigredca…

  3. JoeK

    I thought that there already is a system for sharing value, inherent to these businesses?When I hail and pay for a 10 dollar Uber ride, I save 20 minutes relative to finding a regular taxi and 20% of the taxi fare, the driver makes 8 dollars and Uber makes 2. Isn’t everyone winning here?The whole theme of the discussion appears to be that I, as a rider, should benefit from Uber’s humongous valuation, but I (as a rider) already derive significant (risk-free) value from Uber’s success, and ultimately, so do Uber’s drivers.

    1. kidmercury

      suppose a platform wants to compete with uber, and wishes to attract developers and drivers by offering some share of the revenue that uber earns (not just the take fee, but also through licensing its data, developing predictive models for other business ventures, etc). can they offer equity to attract the network, and thus engage in a bidding war with uber? or do legal regulations prevent this?

      1. JoeK

        I’ll leave the legalities of this to someone else as I do not know enough about it, but offering equity to attract a network is basis of many a Ponzi scheme.

    2. fredwilson

      not you, the driver

  4. kidmercury

    this is one of the major things that leads to the world beyond the nation-state. the main form of intra-network profit-sharing and governance in such a world will come through the issuance of a private currency.

  5. pointsnfigures

    Coops that I have seen don’t innovate and run into shortages. This is an interesting problem which is tangentially addressed in a book I am reading (MetaSkills) and blogged about today…This “Co-Op problem” might be solved with Bitcoin/blockchain. If co-ops issued their own currency, and there were markets to arbitrage between the values of the co-op currency, what might that look like?

    1. fredwilson

      yup, that’s why Marc-David rejected the cooperative model

  6. Yinka!

    I daresay the US is more likely to implement a solution before France. Despite occasional proclamations of pro-entrepreneurship directed at startups, it seems the French govt hasn’t really exhibited changes at the core: local legislation that truly eases creation, operation, taxation burdens for new businesses and encourages expansion of growing businesses, especially those that may incorporate business or ownership models with new twists.That said, this is one context where even terminology is a friction area. The business/governance/ownership model called the “sharing economy” is such a misnomer for the sales/rentals of surplus inventory/capacity. “Sharing” leads to consumers, staff (and other parties like govt and society) having different expectations of involvement and benefit from the company’s governance and business model. Whereas, someone adequately labelled as a customer buying X would have no expectation beyond the good/service performing what as advertised. Not to speak of the now-flammable definition of “staff”. “Sharing economy” companies are pushing against that “pensionable” burden otherwise known as employee by calling workers “partners” but some are no longer buying that.

  7. Salt Shaker

    The Green Bay Packers come to mind. One has a much stronger affinity when an emotional and financial link exists. Leads to network effect enhancement too.

    1. Drew Meyers

      Yup… I was thinking sports teams like the Packers when I saw this topic. I believe, here in Seattle, Sounders FC operates something like that as well.

  8. LE

    Not so long ago, the sharing economy was seen pretty much universally as a sort of magic bullet for the social and environmental crises of our times.By who? Academics, liberal media, liberal bloggers et al with little street smarts? So typical. Naive feel good shit. Not only did everyone not think this (that’s quite obvious) but it’s really typical of the way things are presented and talked about in our society – hero or zero no in between or nuance and never any consideration of unintended consequences. The headline has to be clear concise and allow people to be polarized and take sides.

  9. LE

    In 2011, I co-founded a collaborative platform called “La Ruche qui dit Oui !” (“The Food Assembly” in English). At the time, the concept of the “sharing economy” hadn’t yet emerged.I can’t remember what I watched or ate two night ago but…Actually a similar concept has been around for a long long time. There was an author when I was in college who wrote a book “The Sharing Society” that a bunch of students (including myself) went on some Sunday TV show to discuss the book with. It dealt with this exact subject. At that time the students didn’t take it seriously at all. They didn’t even read the book prior to the TV show taping. [1] And after the show they tossed the books that they each had (advance promo copies) in the trash can [2] as if to say “fuck this shit”. The old days prior to thinking about the good of others.Amazing, I just found it by googling “The Sharing Society Edward” (I didn’t remember the guys last name):…And here is the guy and who he was:…In particular:Lamb’s books included “Planned Economy of the Soviet Union” and “The Sharing Society.” The latter, published in 1979, advocates a world community and predicts that uncontrolled, unplanned nations with extremes of wealth and poverty cannot exist much longer….[1] I did of course[2] I didn’t of course. I think I still have it somewhere….

  10. Nick Lashinsky

    This is a great read, Fred. I’d love to see a successful model play out we can point to as an example within the next few years.This reminds me of a conversation I had recently about the analogue in the B2B world. That is, the first 20 or so customers for a b2b SaaS company contribute tremendous value to the formation, credibility and growth of the business. They also take on huge risks by partnering with startups: the earlier the stage, and the more important the infrastructure, the riskier. So with all this risk and value creation in the formation of the business, is it a crazy idea to think that the first 10,20,30 customers should obtain equity?

    1. JoeK

      Where does it end though? Once the first 20 customers have signed up, the business technically flatlines until the next customer signs up, which theoretically makes them more valuable than the 20 customers you already have.It also could mean that as a customer, you are incentivized to be one of the first 20, making it logical to continually keep switching your patronage and business from startup to startup, accumulating equity each time, but never returning anything more to the business than that first contract. This is a recipe for disaster.

      1. Nick Lashinsky

        couldn’t you apply the same slippery slope argument to equity for employees?

        1. JoeK

          You could, and aside from the practical complications of switching employer every few months, you could argue that vesting schedules incentivize employees to stay put, at least for a while. Which raises the question of whether a similar scheme could be implemented for customers.The difference is that most employees are salaried, and so continually extract value from the business, whether or not it’s product is more cost-effective that the competition’s. As a customer, being tied down to one vendor, independent of whether it is the ‘best’ product on the market at any point in time, knowing that it has a 90% probability of failing over the next 5 years, represents way too much risk for me.

    2. JLM

      .Did they invest equity?JLMwww.themusingsofthebigredca…

      1. Nick Lashinsky

        There was only one time I’ve seen it happen where a sales conversation breaks out into a separate thread with corp dev, the founders don’t want to sell, and so then the company becomes an investor AND a customer.

    3. Lawrence Brass

      If you are big company adopting a new SaaS product from a startup company, I think that it makes a lot of sense for them to obtain or accept equity as a means to lower perceived risk. That way they have the chance to get an inside view and maybe even pull a lever or squeeze a ball if the time comes, as long that they have equity with voting rights.In this century’s mashup culture there is a lot of risk taken that is usually not acknowledged. As is the case when you build systems assembled from parts and services from multiple vendors, where a few have not yet achieved financial/operational stability and probably are burning VC money to survive. If a component or service goes belly up, so does the rest.So from the risk estimation and control point of view, acquiring equity from your nascent and significant service provider makes a lot of sense to me.

  11. William Mougayar

    This could done by extending the Public Benefit Corporation theme and by calling it “Shared Benefit Corporation”, where a company is allowed to share their ownership, say up to 5-10% of their equity (or profits) to their network participants via a clearly defined method of their choosing, but with the utmost transparency and level-playing way possible. Employee profit sharing has been around for years, and it’s an accounting entry.But to get there, the trick is to link value creation to value exchange, and value appreciation is another step here. When we earn frequent flyers points, do we expect these points to appreciate in value? Do we expect the airline to give us some company shares because we have flown 1 million miles with them? No and No. Yet, we are contributing to their well-being by being a customer.But it gets more complicated now when producers and consumers are blurring.Companies like La Ruche qui dit Oui! that want to do this can start by devising a carefully planned points systems as a preliminary way to show how they would implement this. That could help them to hone the wheels of value creation/exchange/appreciation as it ties in to their business operations. And it can serve their case in front of regulators, as they’ll be showing this to work on paper first before enacting it, financially.In my experience researching and thinking deeply about new flows of value in the age of decentralization (upcoming book on that topic), I’m finding out that the challenges are in creating the mechanisms and constructs for such new forms of value, as being the most difficult part. That is, how do you link (passive or active) actions to actual value creation, value received, value exchanged, value appreciated? That’s where innovation must be directed. In the face of a solid system of value, the regulators will find it hard not to capitulate.

    1. Kevindoylejones

      This also gets over the disaster that occurred with AOL’s sale to time warner back in the day, where users who created the value revolted because they had built platform but got nothing through the sale, and the good will and the company never recovered.

      1. William Mougayar

        Yup, these were the days were clarity of thinking was blurred by oodles of distortionary assumptions.Another way to implement this is to only give value when you provide value, i.e. it doesn’t continue if you stop participating. Or, implement a value decay of sorts. If you don’t spend it or prime it, it decays. These are all theoretical ideas waiting to be proven, but the intent is to discourage any gaming of the value system.

        1. Kevindoylejones

          vesting has to be part of it; you create some value that lasts if you stay long enough.

    2. JLM

      .The length of your excellent explanation shows how difficult this is to do. The PBC has a bit of “wow, this is cool” rather than real equity underlying it.At some time, you have to be an owner to be an owner.JLMwww.themusingsofthebigredca…

      1. William Mougayar

        And there are different ways to become an owner: you can buy it or earn it. We’re talking here about nuances of “earning” it.

        1. JoeK

          Do I want AMZN to offer me stock every time I make a purchase from them? No, I want the lowest possible price on every item I purchase, which leaves me with dollar savings that I can invest (or spend) as I choose.Why is offering me a fractional slice of the pie, whose value will change at the whim of Jeff Bezos, better for me as a consumer?

          1. William Mougayar

            Correct. In those cases, it doesn’t offer you anything, except that you can earn Amazon points which are only redeemable there and you end-up spending more anyways.But if there is network value in the exhaust of your actions, then that might be a different situation.

        2. JLM

          .Yeah, well, I don’t want to “earn” it. I want to get the best prices and not much more.JLMwww.themusingsofthebigredca…

  12. John Belo

    I believe there’s a lot of value when there’s clear financial alignment between platform and ecosystem.There are many angles here however: not only can ecosystem participants own equity in the platform, but the reverse is also true.I believe the main challenge comes down to competitive dynamics – in certain markets channel conflict is unavoidable, in others it is less of an issue. So platform companies need to manage this carefully and ensure constant alignment and focus on initiatives that expand the ecosystem and make it more attractive to customers and participants alike.

  13. jason wright

    the platform equity states, based around branded programmable tokens, built on the blockchain.

  14. David Semeria

    I imagine one man, one vote would not sit too well with the VC community…

    1. fredwilson

      i am a fan of one vote per share

      1. David Semeria


  15. lunarmobiscuit

    The conversation is conflating two pieces of ownership: remuneration and control.This is a common mistake, as corporate “ownership” generally includes both aspects, as does most co-ops. But nothing the law or ethics says we need to tie those together.For remuneration, the question is, what part of the profits are due to the workers at Uber (and equivalent), as they are the ones satisfying the customers, earning the revenues. The revenue-split is inherent in the Uber model (like in the App Store model), but if Uber succeeds at some day going public and making thousands of millionaires from its white-collar staff, how much of that should be shared with its drivers, beyond their rev-shares?Separately is the question of whether those drivers should manage the company, or have any say in its management. In Uber’s case, it is quite clear that the skills of being a driver have little to nothing in common with the skills at building a mobile app, negotiating with cities and countries for policy changes, and raising the billions of dollars needed to make Uber a profitable global success. Nothing says the “shares” given to drivers need to come with a consensus management model (which is the default for a co-op) nor even a vote for the board of directors.When you look at “ownership” in detail, you find a half dozen other ideas bundled together in the everyday use of that term. See Marjorie Kelly’s “Owning the Future” ( for a great overview of equitable ways to split ownership amongst all the stakeholders in a company, including multiple case studies of successful ESOPs and other such structures.

    1. fredwilson

      i think that is what Marc-David was referring to when he said the cooperative model wasn’t well suited to startup. he wants to share the upside but not the governance

  16. rufus pearl is a cash back site in the UK which gives shares to its customers for free

  17. Michael Elling

    Raise this to the macro level and you have a discussion around inter-network settlements; the antithesis of the net neutrality model. Ecosystem of balanced settlements (exchanges) whereby networks, apps, actors, agents all working together for greater (inter)network effect is what we need to clear supply and demand north-south and east-west in the informational stack. This works if we mandate interconnection all the way out to the edge. There need be no monopolies–natural or otherwise–and technology can be rapidly and uniformly be accessed and amortized efficiently.

  18. Graham Brown

    I think this may be the French reply…….L’économie collaborative, ce casse-tête fiscalINGRID FEUERSTEIN / JOURNALISTE | LE 12/01 À 07:00image:…économie collaborative, ce casse-tête fiscal – Françoise Ménager pour « Les Echos »1 / 1PrécédentSuivantL’essor des échanges entre particuliers commence à inquiéter l’administration fiscale. Si les revenus de l’économie collaborative sont bel et bien imposables, rares sont les contribuables qui les déclarent. Et les transactions échappent largement à la TVA.Par Ingrid Feuerstein Journaliste au service FranceDans une France en crise, l’économie collaborative a prospéré à grande vitesse. Vous louez à votre voisin sa voiture, sa tondeuse, ou bien un espace de stockage dans son garage. Vous financez l’entreprise d’un ami par une plate-forme de prêts entre particuliers. En voyage, vous ne logez plus à l’hôtel mais dans un appartement loué sur Airbnb. Les travailleurs précaires y trouvent le moyen d’arrondir leurs fins de mois, les consommateurs défiants, un mode de consommation plus conforme à leurs valeurs. Encore pionniers il y a quelques années, ces usages progressent à une telle vitesse qu’ils inquiètent non seulement les secteurs menacés d’« ubérisation » mais aussi l’administration fiscale. Si les revenus de l’économie collaborative sont bel et bien imposables, rares sont les contribuables qui les déclarent, souvent par méconnaissance des règles. Et les transactions échappent largement à la TVA. « L’administration fiscale apparaît bien démunie face à cette croissance des échanges entre particuliers », résumait un rapport du Sénat en septembre. Quel est le manque à gagner pour les finances publiques ? Difficile à estimer, mais certains chiffres parlent d’eux-mêmes : le site Airbnb compte 150.000 annonces en France, l’application de covoiturage BlaBlaCar affiche 8 millions de membres et 5 millions de visiteurs se rendent chaque jour sur Leboncoin.Compte tenu des enjeux, le sujet s’est naturellement invité dans le débat sur la loi de finances à l’automne. En deuxième lecture, le gouvernement s’est appuyé sur une disposition votée au Sénat pour imposer aux plates-formes l’obligation d’informer les utilisateurs sur les conditions de fiscalisation et le montant annuel de leurs revenus à déclarer. Sur ce sujet, les hauts fonctionnaires de Bercy marchent sur des oeufs. Pas question de freiner un secteur en pleine expansion, et qui peut apporter des revenus d’appoint à des travailleurs précaires. D’autant qu’un cadre trop contraignant risquerait de faire fuir les utilisateurs vers des plates-formes qui ne jouent pas le jeu. Pour éviter cela, le Sénat avait justement introduit un seuil d’exonération de 5.000 euros en dessous duquel les revenus ne seraient pas imposables. Bercy n’a pas retenu cet abattement, considérant qu’il posait des problèmes constitutionnels. Cela risquait, en effet, de créer une rupture d’égalité devant l’impôt : par exemple, entre un propriétaire qui loue son logement à l’année, et celui qui passe par Airbnb.Pour autant, ces mesures prises dans l’urgence s’apparentent plus à une rustine qu’à une digue face à une vague de fond qui submerge la société. D’ailleurs, de nouvelles dispositions sont attendues dans la prochaine loi El Khomri, alimentées par le rapport du député Pascal Terrasse. Car l’économie collaborative pose un véritable casse-tête à notre système fiscal. La première difficulté porte sur l’assiette d’imposition. Quels revenus taxer ? La réponse n’a rien d’évident vu la diversité des acteurs du secteur. Logement, covoiturage, « crowdfunding »… Chacun répond à des logiques différentes. Pour le financement participatif, le sujet est relativement simple : les intérêts perçus sont imposés comme tout produit d’épargne. Les prêteurs reçoivent chaque année un imprimé fiscal unique (IFU), également transmis à l’administration fiscale. L’équation se complique lorsque l’on aborde la location d’objets entre particuliers. Faut-il imposer le revenu brut du loueur ou le bénéfice ? Dans le second cas, le covoiturage est d’emblée exclu, puisqu’il n’est pas censé générer de profit, sans quoi une licence est nécessaire. Si l’on retient la taxation du bénéfice, il faut encore pouvoir le calculer. C’est possible pour une location de voiture puisqu’il existe un barème fiscal des indemnités kilométriques. C’est bien plus difficile pour tous les autres objets du quotidien : jusqu’à preuve du contraire, il n’y a pas (encore) de barème fiscal de la perceuse ou du lit bébé… Dès lors, faut-il que chaque contribuable calcule un amortissement de son bien ? On est loin de l’esprit de simplicité et de convivialité de ces plates-formes collaboratives…Une fois l’assiette d’imposition définie, il faut encore clarifier le taux. En théorie, les revenus des utilisateurs doivent être déclarés au nom des bénéfices industriels et commerciaux (BIC). A ce titre, ils sont soumis à l’impôt sur le revenu. Mais remplir cette déclaration nécessite d’avoir un numéro de Siret, en clair, d’être propriétaire d’une entreprise. Ce n’est pas toujours le cas des utilisateurs… En somme, on veut les pousser à déclarer leurs revenus mais la déclaration d’impôt ne comporte pas de case à cet effet !Le problème devient encore plus complexe si l’on aborde la question de la TVA. Inventé dans les années 1950 en pleine émergence de la société de consommation, cet impôt prévoit de faire porter la fiscalité sur le consommateur final. On n’avait pas prévu, à l’époque, que des consommateurs feraient affaire entre eux… Pour ne rien arranger, la TVA est encadrée par une directive européenne, ce qui fait que toute modification doit se faire en accord avec nos partenaires européens. D’après cette directive, les particuliers ne peuvent pas facturer de la TVA. Mais alors, les professionnels « ubérisés » peuvent crier à la concurrence déloyale. Tout ceci montre à quel point la frontière de l’activité commerciale est devenue floue. A partir de combien de voitures ou d’appartements en location est-on considéré comme un professionnel ? De nombreux utilisateurs se situent dans une zone grise… Car cette France du « boncoin », c’est aussi celle qui, écrasée par les charges, cherche à contourner le système. Sans doute plus pour longtemps…En savoir plus sur

  19. Shannon Clark

    For companies such as Uber etc while I understand they want to limit the number of shareholders prior to going public but I don’t see what the problem would be to extend their equity (or option) grants to the folks who are literally building their business their drivers. Private companies grant shares to outsiders all the time – Facebook famously paid an artist in shares to create art for their offices but all companies unless they have a clawback proviso will eventually have employees who have vested shares (or options) who leave the company to work elsewhere. And companies have been granting shares to outside advisors, partners, board members etc for decades. In the case of “sharing” economy businesses other than greed what is preventing a company from granting their contractors (whom I think in many cases should be classified as employees but that’s a different discussion) equity.For example in the case of Uber they might set a threshold and a time requirement for equity grants (for example a driver may have to have completed some X number of rides and have been active and not in dispute (i.e. poor ratings etc) for some specified period of time at which point they get a small equity grant subject to the same vesting and “insider” rules. So the grant might include a vesting schedule, it might include limitations on 3rd party sales etc.Yes this might trigger rules around outside shareholders so there may be some complexity that would have to happen.But there are likely solutions – for example instead of directly granting Uber drivers shares in Uber what about the following option. Uber creates an entity whose entire purpose is to own shares in Uber on behalf of Uber’s drivers and partners – grants made by Uber would flow to this entity (which would be one external shareholder) and Uber’s drivers (and possibly other partners) would instead get grants of an interest stake in that new entity.Since that entity is unlikely to go public itself there might be provisos that in the event of Uber going public (or being acquired) those shares held would be distributed to the owners of that entity and the entity disolved.(I’m not a lawyer or an accountant so I’m sure both would need to weigh in to figure out the actual structure).Potentially this entity which Uber drivers would now collectively have an interest in (after they meet some thresholds and subject to some rules) could over time also offer other services or benefits to drivers (in which case that stake in the entity might have more value than just the shares in Uber that it corresponds to – for example such an entity might evolve into the vehicle via which Uber drivers buy as a group insurance, vehicles, health insurance, tax services etc)A similar model might work for other “sharing” economy businesses – done well it might even help solidify the arguments about who is/is not an employee – and where/when Unions come into the picture this external entity might have a direct relationship with the respective Union(s). In any case it seems to me that some creativity – but equally a real desire to make it happen could indeed make the participants in a “sharing” economy share in the upside of the business but it would have to start with a real desire to actually share with them.(on a separate note I think Easy did a pretty nifty job of letting active participants in their marketplace have a chance to participate in the IPO but many other companies haven’t even made a token effort to reward their early and/or active users. LinkedIn for example I think could have and perhaps should have made a gesture towards their very earliest users when they went public – and yes, full disclosure, I was among their first 1000 users)

  20. Monterey Shark

    Should/could Uber be sharing some of its $60B valuation with its drivers? Yes.Could the drivers still be independent contractors and equity owners? Yes.Should it be cooperative ownership, 1 person, 1 vote? No.Let’s look at the business benefits:1. Shared economy marketplace business model – supports hyper growth, scales really efficiently and profitably, no hard assets (outside of office) to own, labor force is independent contractor, can focus on customer service versus asset maintenance.2. Independent contractor workforce. Workers like having their own schedule, work for yourself/ be your own boss. Make money on the side or work it full time.3. Uber using a “cooperative” approach (not literal cooperative legal structure), could offer collective benefits, which workers could opt-in or out of. Uber could offer equity via stock purchase/options ESOP plan. Make the drivers your partners, create pride of ownership. Engage your workers to build the customer experience of your company.4. Customers can also be members. REI and many others use this approach. Maybe not for Uber, but in home healthcare, why not market and enroll the customers (families/seniors) as members. Membership can be a very powerful trust, value and customer retention/relationship tool in an online world.Shared economy indeed!

  21. Lawrence Brass

    Thanks Andrew, interesting article. Any entrepreneur that is in a stage between bootstrap/angel and VC capital should be learning about JOBS T3.